Facts and Issue: The assessee following mercantile system of accounting, did not

offer to tax interest income accruing on non-performing assets. The AO held that
since the assessee was following mercantile system of accounting, it was liable to
pay tax on interest income accruing on non-performing assets even though the
same was not received. The Tribunal ruled in favour of the assessee. The High Court
relied on the co-ordinate benchs decision in the case of CIT vs Canfin Homes
Limited (201 Taxman 273) in which it was held that as per the policy guidelines
issued by National Housing Bank, the income from non-performing assets should be
recognised only when actually received. Thus, the High Court dismissed the appeal
filed by the Income tax department.

Decision: The SC has now dismissed SLP the filed by the Income tax department
holding that there was no merit in the SLP. The SC however ruled that the question
of law is however open.

Citation: The CIT vs The Urban Co-operative Bank Ltd. (SLP 206/2015) (SC)
Authority SC
Name

Location Delhi

NJRS Ref D-38731-2014-SC

No

Filing/Diary 26-11-2014
Date

Filing/Diary 2014
Year

Appeal SLPC-36409-2014-SC
No

Appeal 12-12-2014
Date

Appeal 2014
Year

Diary No D-38731-2014-SC

Appellant COMMISSIONER OF
Name INCOME TAX AND
ANOTHER

Responde M/S. CANFIN HOMES

nt Name LTD.

Appellant Revenue
Type

PAN NOPAN0000F

Appeal Dismissed
Status

Sections 145
involved

Question A. Whether, on the facts

of Law and in the circumstances
of the case, the Hon'ble
High Court was right in
holding that dividend
income should be taxed
under the head "Business
income"?
B. Whether, on the facts
and in the circumstances
of the case, the Hon'ble
High Court was right in
answering the questions
of law on the issue of
head under which
dividend should be taxed
against the revenue by
following its own decision
in assessee's own case in
ITA No.801 of 2006
without appreciating that
in ITA No.801 of 2006
inter-alia relied on ITA
3159 of 2005 wherein the
question answered by the
court was totally different
from the question raised
in ITA No. 801 of 2006?
C. Whether, on the facts
and in the circumstances
of the case, the High
Court was right in holding
that income from non-
performing assets should
be assessed on cash
basis and not on
mercantile basis without
appreciating that the
company has been
maintaining its accounts
in the mercantile system
of accounting and as per
the amended Sec.145
mixed system of
accounting is not
permissible?
Connected SLP(C) No. 36411/2014
Matters

Lower ITA-948-2007-BEN-HC
Court -
Appeal Ref
No

Relevant Income-tax
Act

Assessmen 1998-99
t Year

Departmen MRS. ANIL KATIYAR

t's Counsel

Judge HON'BLE MR. JUSTICE

Name ANIL R. DAVE

Subject Deductions/exemptions
Category

A. Whether, on the facts and in the circumstances of the case, the Hon'ble High
Court was right in holding that dividend income should be taxed under the head
"Business income"?

B. Whether, on the facts and in the circumstances of the case, the Hon'ble High
Court was right in answering the questions of law on the issue of head under which
dividend should be taxed against the revenue by following its own decision in
assessee's own case in ITA No.801 of 2006 without appreciating that in ITA No.801
of 2006 inter-alia relied on ITA 3159 of 2005 wherein the question answered by the
court was totally different from the question raised in ITA No. 801 of 2006?

C. Whether, on the facts and in the circumstances of the case, the High Court was
right in holding that income from non-performing assets should be assessed on cash
basis and not on mercantile basis without appreciating that the company has been
maintaining its accounts in the mercantile system of accounting and as per the
amended Sec.145 mixed system of accounting is not permissible?